Energy tax raises spectre of higher bills for ratepayers

Hartford - This is certain: There will be a new state tax on energy generation.

The only debate now is how that tax should be structured, and whether it would be passed on to consumers as higher electric rates.

"A decision about a tax has already been made," state Rep. Vickie Nardello, D-Cheshire, co-chairman of the legislature's Energy Committee, said Tuesday. "The question is what exactly that tax will look like."

The tax in Gov. Dannel P. Malloy's budget is expected to generate $72 million a year in revenue by taxing nearly all of Connecticut's electricity producers at the same rate, whether they're nuclear, coal, oil, or natural gas. Solar and other renewable energy sources would be exempt under the temporary, two-year tax.

But some lawmakers and consumer advocates fear that the framework of the governor's tax - an across-the-board tax on all major forms of generation - would result in eventual rate increases.

This is because the price of energy produced from oil or natural gas typically determines the rate set for all energy generators. So if Connecticut were to levy higher taxes that affect electric generation from natural gas, it could lift all prices to a higher threshold.

"We do not believe the ($72 million) that's accounted for in the governor's budget is the way to go because we do believe that will get passed along to the ratepayers," John Erlingheuser, AARP Connecticut advocacy director, said at a news conference Tuesday on the topic of electric rates.

An alternative and more controversial proposal, backed by Nardello and fellow co-chairman Sen. John Fonfara, D-Hartford, has passed their energy panel but isn't in the latest version of the governor's budget.

That measure would generate $340 million by taxing nuclear, oil and coal generation, though leaning heavily on nuclear. The Millstone Power Station in Waterford, the state's sole operating nuclear facility, would have to pay $332 million annually. Dominion, Millstone's owner, has said the tax would force the company to shut down the plant.

Nardello also said Tuesday that she hopes a small, separate and unrelated surcharge tax on electric ratepayers can be eliminated from next year's budget.

Both Nardello and Fonfara indicated Tuesday they are flexible regarding the size of an energy generation tax but want it to be structured to avoid consumer rate increases. The governor's tax, despite its smaller size, would precipitate rate increases because it taxes generation from natural gas, they said.

"It's not the amount, but the method," Fonfara said.

Dominion says it is willing to absorb the roughly $40 million annual cost to Millstone of the Malloy tax. The Malloy tax would cost electric generation from natural gas about $29 million annually, a sum that could get passed to consumers because of the role of natural gas in the auction system.

"The $29 million on natural gas, that's going to hurt," said Joseph Rosenthal, principal attorney for the state consumer counsel.

Fonfara said he and others hope to soon offer a proposal that would make adjustments to the generation tax in the governor's budget.

A spokeswoman for the governor issued the following response to concerns about his tax proposal: "Governor Malloy is acutely aware of the shared sacrifice he is asking of everyone in the state. There are no easy answers. But he believes that his proposal is the most equitable and fair and will help stabilize our state's economy and put people back to work."